Cablegate: Scenesetter for Deputy Secretary Kimmitt Visit To

DE RUEHMD #0218/01 0590840
P 280840Z FEB 08





E.O. 12958: N/A

MADRID 00000218 001.2 OF 003

1. (SBU) Summary. Embassy Madrid warmly welcomes your visit.
When you arrive, Spain will be 4 short days away from what is
looking to be a very close March 9 general election.
President Jose Luis Zapatero and his Socialist Workers party
are slightly ahead in the polls, although the opposition
Partido Popular, led by Mariano Rajoy, has gained ground.
Top electoral issues include a slowing economy, terrorism,
regional autonomy, and immigration. Regardless of which
party wins, we expect continued growth in the U.S
relationship with Spain. Since your October 2006 visit, we
have increased coordination with Spain considerably,
partnering on issues of counter-terrorism, law enforcement
and multi-lateral policy. On Iraq, Spain has fulfilled its
commitment to contribute $22 million to the Basrah Children's
hospital and has fulfilled nearly all of its 225 million euro
Iraq Compact commitment. We are sure that your visit will
reinforce our efforts to strengthen bilateral cooperation.
End Summary.


2. (SBU) The March 9 general elections will indeed be a tight
race, and at this point it is too close to call. Various
surveys suggest that the ruling Spanish Socialist Workers'
Party (PSOE), led by President Jose Luis Rodriguez Zapatero,
is slightly in the lead. The PSOE is campaigning heavily on
the economy's growth during its government, historic budget
surpluses, and growth of various social programs. However,
voter confidence has been affected by recent signs that the
Spanish economy is softening. The PSOE has attempted to
downplay negative economic indicators, while the PP has
argued the economy is indeed softening and that the PP is the
best party to manage the difficult times to come. Given the
prominence of the economy as a campaign issue, anything you
tell the press about Spain's economy may have great political

3. (SBU) Other major election themes include regional
autonomy, immigration, and law enforcement. The PP has
argued that the PSOE has made too many concessions to Basque
and Catalan regional governments, is weak on ETA (Basque)
terrorism, and is soft on illegal immigration.

4. (SBU) Foreign Affairs and the U.S. were not expected to be
key issues in the elections. However, the PSOE is reminding
voters it got Spain out of its unpopular Iraq involvement
while the PP argues that Spain's international prestige and
influence has slipped as a result of such actions. Both the
government and the PP have strongly criticized U.S. and
German/British/French/Italian support for Kosovo's
declaration of independence, which they fear will be seen by
Basque and Catalan separatists as a precedent for their own
aspirations. The PP has criticized the GOS for not being
able to prevent the independence declaration, which the GOS
doubtless would have preferred to delay until after the
elections. We are seeking to avoid being drawn into the
campaign. Although they are not a campaign issue here, the
U.S. primaries have attracted intense interest, and you may
be asked for your thoughts on them.

Economic Overview

5. (SBU) Spain has had one of the fastest growing economies
in Europe over the last decade, with GDP growth averaging 3.7
percent since 1998. The housing boom, which was sparked by
lower interest rates that resulted from Spanish euro
membership, contributed greatly to this growth, and an
economic milestone was reached when Spain's per capita GDP
(on a PPP basis) passed Italy's in 2006. U.S. investment has
long been important to the economy, more so than bilateral
trade, but the tables have turned. In 2007, Spain was the
fourth largest investor in the U.S., with a particular
emphasis in banking, construction, and renewable energy. In
the latter sector, Spain has the world's largest and third
largest wind power firms, and Spanish firms are active in the
U.S. solar and biofuels projects.

6. (SBU) Although the economy grew by 3.8 percent in 2007 and
3.5 percent in the fourth quarter, it is showing clear signs
of a slow-down. The OECD estimates that Spain's GDP growth
in 2008 will reach 2.5 percent, somewhat lower than the
Spanish government's current 2008 estimate of 3.1 percent,
but still over the eurozone average. In the fourth quarter

MADRID 00000218 002.2 OF 003

of 2007, the unemployment rate increased from 8 percent to
8.6 percent. In January 2008, registered unemployment went
up by 132,000 people, the largest monthly jump in over two
decades. However, while unemployment is increasing, the
number of jobs continues to increase as well.

7. (SBU) The housing market slowdown was predicted by
numerous analysts and began last year. Housing sales and
real estate construction in Spain decreased steadily in 2007,
and this trend continues even more sharply into 2008.
Decreasing levels of demand, coupled with oversupply and
tighter credit, have all taken their toll. Real estate
developers are taking the brunt of this downturn. As high
profile collapses make the news, questions remain about the
ability of developers to meet their substantial debt
obligations. Some local experts estimate that 60 percent of
Spain's financial sectors (banks and savings banks) go to
real estate lending, a significant portion of which has gone
to developers. Developer's problems have prompted calls for
government assistance, though Second Vice President and
Economy and Finance Minister Pedro Solbes has argued against
this. Despite these concerns, nearly all Spanish homeowners
(roughly 80 percent of Spanish households) continue to pay
their mortgages on time. Despite a very slight increase in
nonpayment of all types of loans, default rates remain low by
European standards at less than 1%.

8. (SBU) The Madrid stock market, as measured by the Ibex-35
blue chip index, has been highly volatile and lost
considerable value. At its height last year, the market
reached 16040. At its lowest point in January, the market
plunged below 12,000, a loss of over a fourth of its value in
just a few months. Although this has mirrored developments
in other advanced markets, the market's gyrations after years
of gains have received a lot of media attention, and
contributed to a general sense of economic concern.

Diplomatic Cooperation and Security

9. (SBU) U.S- Spain relations were seriously damaged by
President Zapatero's decision soon after his election in 2004
to abruptly withdraw Spanish forces from Iraq. However, over
the last several years, both countries have made a concerted
and successful effort to rebuild the relationship based on
strong mutual interests in counter-terrorism, fighting
narcotics trafficking and organized crime, and rapidly
expanding economic ties. The real bilateral story is found
in novel initiatives such as the HSPD-6 agreement we signed
last September to facilitate the sharing of information
between our national counter-terrorism authorities.
Following the March 11, 2004 train bombings, Spain remains a
continued target of Islamic extremists. Al-Qaeda recently
called for attacks to recapture the medieval "Al Andalus",
and the recent uncovering of an Al-Qaeda cell operating out
of Barcelona has shown the Spanish that this threat is not a
idle one. Neither has the decades long threat of ETA gone
away. Two Spanish Civil Guard officers were murdered in
France in early December by the Basque terrorist group,
although the government has arrested many of its leaders and
disrupted several planned bombings.

10. (SBU) Narcotics trafficking is another area of common
concern. Andean cocaine is a serious problem here, and
Colombian trafficking organizations are active in Spain.
Money laundering is another serious issue. We are eager to
find ways to increase bilateral cooperation and to encourage
Spain to engage more aggressively with law enforcement
authorities in key Latin American countries. Spain has
recently taken steps in this direction. Just a couple weeks
ago, the Director General of Spain's Police and Civil Guard
traveled to Colombia to sign a cooperation agreement to fight
drug trafficking and its related crimes through increased
personnel and information exchange.

11. (SBU) Spain is second only to the U.S. in terms of
economic and political influence in Latin America. Spain
wants strong democratic and free market institutions in the
region. Nevertheless, we have sharp differences over Cuba.
Spain's socialist government has opted for engagement,
claiming it can encourage regime elements who want change.
We take every opportunity to remind the Spanish that the
Cuban regime is only interested in survival and that the
Cuban dissidents need and deserve the active and visible
support of democracies everywhere. The GOS also has been
more sympathetic than the USG to Venezuela's Hugo Chavez,

MADRID 00000218 003.2 OF 003

though it appears to have an increasing understanding of
Chavez' drawbacks.

12. (SBU) Spanish military cooperation matters. The bases of
Rota and Moron are strategic hubs, midway between the U.S.
and Afghanistan and Iraq. U.S. planes and ships account for
around 5,000 flights and 250 port calls a year in Spain. The
Spanish military is pro-U.S. and pro-NATO. We need to keep
this relationship strong. Spain has 750 troops with ISAF in
Afghanistan and a provincial reconstruction team in Badghis
province. Spain has contributed some 150 million Euros in
Afghan reconstruction funds. Planning is underway to allow
the Spanish to train and equip an Afghan Army company, which
we hope will be a prelude to the training and equipment of a
full battalion. Spain has nearly 1,100 troops with UNIFIL in
Lebanon and about 700 in Kosovo. On Iraq, Spain has
contributed $22 million to the Basrah Children's Hospital and
a further $28 million in development funding for Iraq.
Spain's total commitment to the Iraq Compact was USD 225
million euros. The Spanish Foreign Ministry says that Spain
has disbursed all of its pledge except for its concessional
loans, which are pending completion of project proposals. It
also has provided through UNHCR over 800,000 euros for
refugee and displaced persons relief in Jordan and Syria.
Spain is an active participant in EU-Iraq negotations on an
economic cooperation agreement that would provide additional
funding for training and development activities.


13. (SBU) Again, we are looking forward to your visit. While
we want to avoid being an issue in the Spanish elections, we
do need to remind the government and all Spaniards that the
bilateral relationship is founded on strong mutual interests
such as counter-terrorism and law enforcement.
Interestingly, local surveys are revealing that more and more
Spaniards recognize that it is important to partner with the
U.S. Regardless of who wins in March, terrorists, drug
traffickers, and alien smugglers will continue to see both of
our countries as targets. We have much work to do together.


© Scoop Media

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